Thursday, August 14, 2014

Commonwealth Bank boss Ian Narev signals need for gov't compromise on budget woes; warns uncertainty not helping business and consumer confidence

The chief executive of the Commonwealth Bank has weighed in with advice on the government's budget woes, signalling compromise might ultimately be necessary.

Ian Narev has told the "AM"  program that the Prime Minister and Treasurer need to be pragmatic about what spending and cost-cutting measures will make it through the Senate.

Mr Narev says while the government's controversial paid parent leave policy "is ultimately a political judgement", in the eyes of voters it was a key part of Tony Abbott's election mandate.

"By and large, I think when people elect politicians they understand they stand for certain policies but we've also got to be pragmatic and understand that in a certain political environment that governments need to make compromises," Mr Narev said.

But Mr Narev rejected suggestions that a review of all budget measures in the form of a mini budget might be necessary to reset the debate.

"I'm not sure a mini budget is the answer. The Treasurer can make his own judgement on that. He has outlined what we consider to be a very appropriate high level vision which is to say over the medium to long term you need a government which is fiscally responsible," Mr Narev said.

"In order to achieve that, there's a series of  policies that need to be passed showing where the  allocation of that is going to happen in terms of cost cutting or revenue raising.

"That is a big political challenge in the context of the current makeup of the Senate." 

Mr Narev also warned that the uncertainly surrounding elements of the budget had the potential to harm business and consumer confidence.

"It doesn't help. But there's no doubt that to the extent we can get a very clear medium to long term policy picture of the environment, that most be good for confidence.

"The budget is a challenge. We've got a lot of a lot of political tensions still in Canberra, there's a lot of debate around individual policies and it is a tough time to be the government."

Mr Narev, who was speaking after the CBA revealed a full year net profit on $8.63 billion, said the government needed consider how its budget problems might be viewed by international ratings agencies.

Last week, respected economist Saul Eslake warned that a failure to get the budget deficit below $3 billion as forecast by 2017-18 could put Australia's AAA credit rating in the spotlight.

"He (Mr Hockey) has outlined  that he feels that is a risk and I think there's no doubt that there is a risk," Mr Narev told AM.

"The idea of getting  the fiscal balance sheet to the point where it is in balance has got to be a critical part of the economic vision.

"The ratings agencies in the long term are some of the important stakeholders you've got to bear in mind."

Wednesday, August 13, 2014

Commonwealth Bank record profit fails to quell heat from financial planning scandal

For Ian Narev, today's full year financial results presented a rare opportunity to accentuate the positive.

There was little else to do given the damage already done to the Commonwealth Bank's reputation over the scandal embroiling its financial planning arm.

So today, the full tool box of public relations spin was deployed as the results hit the stock exchange just after 8.30am.

Here's my analysis from today's edition of The World Today.

Not surprisingly, the CBA's team of media, investor and government relations advisors have spent recent weeks and days polishing messages and preparing Ian Narev and chief financial officer David Craig for the inevitably tricky questions on how they plan to defuse the fallout from the scandal.

This morning's investor briefing was a tame affair and Mr Narev was under little pressure to account for the conduct of his financial planners.

However, journalists are certain to pose harder questions at a media conference later today given the financial and reputational cost to the CBA, which over 102 years has been trusted for its conservative strategy and management.

The intensifying scrutiny is unavoidable, and today despite some hoarseness, Mr Narev will embark on print, television and radio interviews that will run until late in the afternoon.

And given the widespread concern about the financial planning scandal, Commonwealth Bank media minders are likely to have received interview requests from the range of media outlets across Australia.

As the CBA boasts in today's media release on today's results, there are nearly 800,000 households who own the bank's shares directly or through their superannuation schemes.

And in addition to employing 50,000 Australians, the CBA reminds us of its contribution to the economy and $4 billion pumped into local suppliers and partners.

The CBA brands itself with charities, sporting organisations and communities across the country with big financial contributions that are part of its charter for corporate social responsbility.

However, even another record result of $8.63 billion posted today will not be enough to deflect the glare of a concerned federal government and a corporate regulator under pressure to lift its game.

Ian Narev knows it will be a long road before the noise from the scandal begins to fade.

But it emerged on his watch when he was a key member of the CBA's senior management team and one that could partly define his legacy as chief executive.

Tuesday, August 12, 2014

Paul Zahra quits David Jones as South African owners take control

Paul Zahra has resigned as chief executive of David Jones a month after shareholders backed a takeover of the department store chain by the South African retailer Woolworths.

Mr Zahra will be replaced by Ian Nairn, the current chief executive of the Woolworths-owned Country Road.

Woolworths chief executive Ian Moir says apart from Mr Zahra's eventual departure and the appointment of a new chief operating officer, no other significant management changes are expected at this stage.

I spoke with Ian Moir this morning for "The World Today" on the ABC.

Banks have form on credit card penalty fee promises. Are they really in touch?

Banks like to say they listen to customers a lot more these days.

If you believe the advertising across print, broadcast and social media, banks are cosy and caring members of our families.

Massive advertising and marketing budgets have been stumped up in in recent years to tweak images and to show that banks understand the challenges that both personal and business borrowers face.

For example, ANZ - a target of the latest class action announced today - proudly declares "we live in your world" .

No one wants to see an unprofitable bank, and that of course is unlikely with Australia's biggest bank, the Commonwealth, tipped to reveal a full year profit of around $8.7 billion on Wednesday.

But is it fair, lawful, moral or sustainable for banks to continue charging late fees of up to $35 when the recovery cost to the bank is estimated to be about 50 cents?

It's a long running argument that goes to the balance of personal responsibility for credit card holders and how far banks will go to recover whatever they can.

However, some messages from banks over the years are more mixed and potentially conflicting than others.

Back in 2007, I witnessed a rare event when the ANZ's chief executive at the time, John McFarlane - a straight taking, folk singing Scotsman - admitted penalty fees were probably unsustainable.

Participants at the business lunch were surprised to hear a Big Four banking boss suggest he was making a little too much money from consumers.

At the time, the ANZ and the other major banks were under fire for allegedy unfair fees and facing class actions back by litigation funders like IMF Australia.

 "It's interesting that the people who are the poorest pay the highest cost for borrowings and from money lenders and other forms of unregulated lenders. They also pay the most for their banking, you know, they're the least literate financially, and therefore they're at least capable of managing their accounts."

And Mr McFarlane even relayed a moment of personal embarrassment, that most would find unusual for a top banker on a multi million dollar salary, when his credit card was dishonoured at a checkout:

"I have to tell you it's a hell of embarrassing when you're a big shopper and you have to hand everything back at the till because they won't approve your credit card."

But more importantly, Mr McFarlane conceded that some penalty fees are not worth chasing, particularly with people who have limited or no ability to pay.

"Eventually they build up a negative balance, and all you do is write it off, so you never collect it anyway. So what is the point of upsetting everybody by charging it, when you're actually, on balance, not going to collect it."

Seven years have passed since John McFarlane signaled he was in touch with the penalty fees issue and the serious damage class actions can inflict on the carefully crafted images of banks.

Some banks have reviewed the level of penalty and dishonour fees but most still play hard in pursuing them and chief executives continue to push for record profit after record profit.

This has become more intense since the global financial crisis where banks continue to finely balance the interests of shareholders, who want greater dividends, and customers who know how to shop around.

The banks targetted by the Maurice Blackburn class action in the NSW Supreme Court will of course fight tooth and nail, especially given the partial victory inflicted on the ANZ back in 2010.